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# Tag Info

8

Just for clarification, delta and probability of expiring in the money are not the same thing. What the guy meant was that delta is usually a close enough approximation to the probability. One way to think about it is to look at the probabilities and deltas of In the Money, Out of the Money, and At the Money options. A deep in the money option has a really ...

3

The Greeks are used evaluate an option's sensitivity to change in price, time, volatility, interest rates (delta, theta, vega,rho). Gamma measures the sensitivity of a delta to change in price. The strike price is a fixed item in the contract. It does not vary so there is no Greek for it.

3

When we 'delta-hedge', we make the value of a portfolio 0. No - you make the risk relative to some underlying 0. The portfolio does have a value, but if whatever underlying you're hedging against changes slightly the value of your portfolio should not change. But, what is the derivative of a portfolio? It's the instantaneous rate of change of the ...

2

The volatility measures how fast the stock moves, not how much. So you need to know the period during which that change occurred. Then the volatility naturally is higher the faster is the change.

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The Captain Obvious answer is that the call with the highest delta will move up the most (price wise) if you prediction comes true. The not so obvious question is which option will have the largest ROI? In order to answer that, you have to make some pricing assumptions. The first one is easy. The price target is 15% higher. Now it gets harder. The ...

1

Normally, for equidistant options, call time premium will exceed put time premium due to the carry cost of long stock in a conversion. If there is a pending ex-div date put premium will increase, relative to call premium. If it's a hard to borrow stock, put premium increases relative to call premium. Suppose put IV is indeed higher. Is this bearish? ...

1

Does all this indicates bearishness in the underlying? Not necessarily. It could indicate that the stock is difficult to borrow. Typically a market maker selling the puts would sell some stock to hedge his position. To sell the stock (short) he will have to borrow it. If it is not readily available, the borrowing cost would be higher. This in turn ...

1

The easiest way to do it is to first neutralize your gamma with another option, then neutralize your delta with the underlying. For example, consider the following options chain: https://imgur.com/aXBi8A9 (sorry, StackExchange for some reason isn't allowing me to add the image here directly – feel free to edit and fix it). That's SPY for June 21st, 2019. ...

1

Gamma indicates how much the delta of the option will change as the price of the underlying moves. You could reduce the gamma of your position by buying or selling another option with similar gamma. That option would also likely have delta as well, so would need additional delta hedging. Alternatively, you could just continue to delta hedge as the delta ...

1

It's not that straightforward, even though your gamma will change your delta on the fly, you likely won't see the full \$.48 after such a small move. If the vega drops due to lack of volatility while the stock is moving up, those few percentage points up might help your delta (2% gain \$50 to \$51 in your example) but will be partially negated by volatility ...

1

It depends on the accuracy you require. Some of them are intuitive - e.g. the 'delta' is the likelihood the option will expire above or below the strike price of the option. For an at-the-money option, that will be 50%. For an out-of-the money option, that will be close to zero. An in the money option will be close to 100%. 'gamma' is how much the 'delta'...

1

What the other answers seem to miss is that there isn't just a vague or qualitative relation between delta and the probability of expiring in the money. Though the two are not equal in general, there is a precise limiting case in which they converge (and so in many practical cases they may be very close). This is the case where the Black-Scholes assumptions ...

1

The delta is the ratio between a price change in the underlying and price change in the derivative. So a delta of .5 means that if the stock price goes up \$1, the option will go up \$.50. The reason that the delta and the probability of being in the money are (roughly) equal is that an increase in stock price is useful to a holder of the option only if the ...

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